Virginia Gov. Bob McDonnell (R), seeking to address a looming shortfall in his state’s transportation funds, has proposed a plan to boost transportation funding by repealing the state’s gas tax and replacing it with increased sales taxes and a surcharge on alternative-fuel vehicles, the Washington Post reports:
Gov. Robert F. McDonnell proposed Tuesday an ambitious overhaul of how Virginia pays for roads, rail and transit, including eliminating the gas tax and replacing it with an increase in the sales tax.
The overall plan, which would raise an estimated $3.1 billion over five years, also would increase vehicle-registration fees and add an annual $100 charge for drivers of alternative-fuel cars. McDonnell’s proposal calls for a increase in the state’s sales tax from 5 percent to 5.8 percent and projects using $1 billion in Internet sales tax revenue from legislation pending in Congress.
While McDonnell’s plan would raise revenues, it would do so in an assortment of wrong-headed ways. It would shift more of the tax burden to low-income Virginians, since sales taxes are inherently regressive (low- and middle-income earners spend a larger portion of their incomes than do the wealthy). The sales tax would still exempt gasoline while being applied to groceries. And McDonnell can’t count internet sales tax as a definite, since it’s still unclear whether that authority will be granted by Congress.
The shift would also mean that visitors who stop to fill up their gas tanks in the state would still get the benefit of using the roads without paying taxes that support them. It also incentivizes the highway system, a perverse goal considering the bulk of the state’s transportation costs come from Northern Virginia, where there is already a public transportation system that would better serve Virginians if it was made even more robust. And it shifts costs to walkers, bikers, and public transportation users, who would be just as responsible for paying for roads as drivers.
If McDonnell is already willing to abandon his no-tax pledge to fund transportation, there are better ways to do it. He could raise the gas tax, which is currently bringing in less money per gallon of gas than at any time in its history. Or he could close corporate tax loopholes, which drain $12.5 billion a year — four times the amount of revenue his plan raises — from the state’s coffers.